01 November 2006

Wal-Mart Eyes Banking

National Post, Duncan Mavin, 1 November 2006

Wal-Mart Canada Corp.'s invasion of Canada's banking sector would force the big banks to improve service levels for all customers, said experts yesterday.

With the retailing giant likely to compete strongly on price no matter what types of financial products it offers, existing industry players would probably try to hang on to customers by offering better service.

"There's always room for a better, smarter, faster, more service-oriented financial services offering," said Brendan Calder, professor of strategic management at Rotman Business School in Toronto. Mr. Calder said the impact of Wal-Mart will be good news for consumers because the banks will be "egged on" to improve their own customer service. Those improvements could include lower fees, or easier access to cheaper credit.

"The big banks will be worried because they're only now starting to implement good customer service. Wal-Mart has had about 30 years head start on them," said Mr. Calder.

Wal-Mart told the Financial Post earlier this week that it is assessing various options in the Canadian banking sector after recently creating a division to explore its options.

The company has not yet said exactly what sort of services it is looking to offer.

Rival grocery retailer Loblaw offers bank accounts, lines of credit, and mortgages through its PC Financial division, which is run in partnership with Canadian Imperial Bank of Commerce. Canadian Tire also acquired a banking licence in 2003 and said earlier this month it will start offering high-interest savings accounts in some test markets.

Lindsay Gordon, chief executive of HSBC Canada, said the line between banking and retailing has become blurred in recent years.

"It's a phenomenon around the world that retail banks are learning a lot from retailers and starting to act more like retailers," said Mr. Gordon.

He also said there is room for new players in the Canadian financial services market.

"There's always opportunity. Although the big six banks dominate, and they are tough competition, at the same time we have opportunities."

HSBC Canada has delivered growth of about 15% a year on average over the past few years, and now has more than 120 branches across the country.

Meanwhile, Mario Mendonca, an analyst with Genuity Capital Markets said the banks will likely take a "wait-and-see approach" to any offering by Wal-Mart. But, he said, the impact of Wal-Mart's potential entry into the market could be different for each of the existing financial services players.

For instance, there might be less concern about Wal-Mart at banks such as Toronto-Dominion Bank and Royal Bank of Canada, which have particularly strong retail bank networks and a well-established retail banking brand, said Mr. Mendonca.

However, there could be a bigger impact for other financial services providers that have more products where price-competitiveness is important, including some banks and non-branch banking businesses such as PC Financial and ING Canada.
National Post, Hollie Shaw, 1 November 2006

Wal-Mart Canada Corp.'s move into financial services could prompt other retailers into taking a similar leap, industry experts say.

As retailers vie to become the ultimate one-stop consumer destination, multi-category players such as Shoppers Drug Mart Corp. or Costco Wholesale Canada Ltd. might look to add a slate of new financial services for customers.

Wal-Mart confirmed this week that it was exploring the potential of offering financial services in Canada.

"In a world where retail boundaries start to blur, the consumer has a large number of choices for where to buy their shampoo or chocolate bar and perhaps pick up their dry cleaning, and they don't want to make numerous stops when they can make one," said Ken Wong, marketing professor at Queen's University's School of Business in Kingston, Ont.

He noted the movement of retailers into financial services isn't new as most of the larger retailers in Canada now have a credit card, and those "have proven to be some of the more lucrative parts of the business.

"The big news is when they get into everyday banking and insurance," he said. "Everybody is trying to borrow a page from [grocer Loblaw Cos. Ltd.'s] PC Financial."

Canadian Tire recently bolstered its financial services division by introducing high-interest savings accounts to customers in Kitchener, Ont. and Calgary. The retailer obtained a banking licence in 2003.

While a more costly venture than going through a third party, the potential profit upside is potentially much bigger, analysts say.

Those retailers who offer house-branded banking services through a third party generally view the services as a marketing vehicle rather than a direct way to boost revenue.

"Loblaw is not in the banking business to make money," said one retail analyst who spoke on condition of anonymity.

"It's the credit card business they care about. The average person carries a balance on the card and it has an 18% to 19% rate on it. The mortgages, the savings accounts -- that's all about convenience and loyalty."

Shoppers Drug Mart, the country's largest pharmacy chain, offers a co-branded credit card with CIBC. Warehouse club Costco has a co-branded card with American Express Canada and offers insurance through a third party, as well as a host of other services including car rental, telephone and Internet service and emergency roadside assistance.

Despite the potential to increase customer loyalty, there is skepticism about how much diversification a retailer can accomplish successfully.

"As you start to get into this much broader array, you run the risk of losing focus on the core business, and Loblaw is a prime example of this," said Mr. Wong, who noted the retailer has been criticized recently for its weak fresh-food offering.
National Post, Hollie Shaw and Carrie Tait, 31 October 2006

Wal-Mart Canada Corp. is looking to expand into the financial services business, a potentially lucrative growth area as the retailing price war intensifies over food, clothing and other consumer staples.

The big-box giant recently hired Trudy Fahie as vice-president of financial services at Wal-Mart Canada, a role created for assessing the retailer's options in the sector. Ms. Fahie is the former vice-president of financial services for American Express Canada.

"We will be looking at a range of possible financial services to enhance our offering to our customers," Andrew Pelletier, a spokesman for Wal-Mart Canada, confirmed yesterday, calling the next six months to a year an "exploratory" period. "It's too early to speculate on what those services will be at this point."

The country's biggest general merchant, which strikes fear into the establishment of every new industry it considers entering, has not applied to become a bank like Canadian Tire Corp. has done, Mr. Pelletier said.

"It's not something that we're looking at right now," he said, while not ruling it out for the future. "There is increasing interest among our customers for broader financial services, and we plan to stay up to date with that customer interest."

Industry experts say Wal-Mart Canada could still offer a range of products through a third party: banking products such as mortgages and high-interest savings accounts or home and auto insurance. They said it is likely Wal-Mart would first offer simpler products such as money orders, wiring or third-party extended warranties before delving into retail banking services.

Rival Loblaw Cos. has an official Canadian banking licence, but uses its bank solely for running a profitable credit card business. The grocery giant's PC Financial division offers banking products including no-fee accounts, lines of credit and mortgages in partnership with the Canadian Imperial Bank of Commerce.

The news comes as Wal-Mart prepares to take the plunge into Canada's ultra-competitive grocery retailing business. Loblaw Cos. Ltd., the country's biggest grocery chain, has spent the past two years expanding its grocery superstore format in anticipation of Wal-Mart's arrival in the sector.

Adding financial services is a way for Wal-Mart to strengthen its ties with customers and does not necessarily involve taking on much risk, industry experts say.

"Accessing banking through third parties is not unusual for retailers and it's an effective and efficient way of getting into the business, which gives them access very quickly to a wide range of products," said Keith Sjogren.

Mr. Sjogren is director of strategy consulting at financial services consultancy Investor Economics.

Starting up a proprietary bank can take years and significant capital investment, he noted.

"If you share the risk with a third party the return may be less, but because the investment is lower, it may be more attractive to you. In the case of Loblaw, it's attractive for CIBC to gain access to the Loblaw customer base and for Loblaw, it's attractive [to offer such services] as a way to deepen its relationships with customers."

Wal-Mart Canada, which will compete with Loblaw Cos. and Sobeys Inc. when its new Ontario grocery stores open next month, currently offers house credit cards at its stores and at its Sam's Club warehouse outlets in a third-party agreement with GE Capital, and also has non-bank ATM cash dispensers in its stores.

The retailer's American division has unsuccessfully tried to make inroads into banking in the U.S. In the summer of 2005, Wal-Mart Stores Inc., the Arkansas-based owner of Wal-Mart Canada, applied for a Utah industrial bank charter, which is still pending. Earlier applications by the retailer for bank charters in Oklahoma and California were turned down.

Numerous Canadian retailers have leveraged their customer bases by offering house credit cards or some banking services.

Canadian Tire, which acquired a banking licence in 2003, announced earlier this month that it would start offering high-interest savings accounts in the test markets of Calgary and Kitchener, Ont. The retailer is expected to later roll out products including mortgages and GICs.

Sears Canada Inc. obtained a banking licence in 2003, but did not extend it beyond credit cards before its financial services division was sold last year to JP Morgan Chase & Co., which is expected to use Sears as launching pad to offer consumer banking services in Canada. And grocery chain Sobeys Inc. has been putting small Bank of Montreal branches inside some stores from Ontario to the East Coast of Canada.